Wednesday, October 26th, 2016

Craft brewers are not buying what Miller is selling


Our friend TJ Buczak makes an appearance in this week’s column for the MacIver Institute. Andy Warhol was wrong. In the future, everyone I know will make an appearance in one of my columns.

I have an acquaintance, TJ Buczak, who is a pretty good plumber. Everyone should know a good plumber, right? But what makes this plumber even better than most is that he has put his knowledge of liquids and pipes into a very fun hobby, making his own beer.

Unlike a lot of home brewers, our plumber friend TJ is actually pretty good at making his own beer. I know this because I’ve sampled it. TJ is now at the stage of entering his different types of beer in competitions and, very soon, he will start selling the beer to other people. With any luck, our friend will someday join the sixty commercial craft brewers that make up 5% of the beer market in Wisconsin.

It’s the Wisconsin dream. Frederick Miller. Frederick Pabst. Gottlieb Heileman. Jake Leinenkugel. And now?

Our man with a dream, a little know-how, and some copper tubing, is going to face some unnecessary roadblocks in his future if the state legislature changes the laws regarding ownership of beer wholesalers by brewers.

The Joint Finance Committee (JFC), in a move designed to stifle competition with MillerCoors from Anheuser-Busch, adopted as part of the state budget changes in the way beer can be distributed in Wisconsin. The biggest change in the law would prevent brewers from owning beer distributorships.

Wisconsin already has an arcane system of rules governing the way beer is sold in Wisconsin known as the three-tier system.  Manufacturers (tier 1) sell to wholesale distributors (tier 2) who sell to retailers (tier 3). Most of us then buy our beer from tier 3 rather than the manufacturers or even the wholesalers.

The excuse we’re given for the three-tier system is that it protects competition because the distributors have a vested interest in meeting the demands of the consumers in what types of beer it provides rather than the needs of the manufacturer to maximize market share. The distributors also claim that the system aids in the collection of taxes (something attractive to lawmakers) because of the accountable nature of the system, and the excise tax on beer is collected from wholesalers.

In 2009 industry analysts said Anheuser-Busch, the number one beer manufacturer in the world, hoped to someday self-distribute up to 50% of its products by consolidating and acquiring wholesalers. The goal was to increase the margin from sales by cutting out the middle-man.

The fear by distributors in Wisconsin is that direct competition from Anheuser-Busch could drive them out of business. They argue that if the distribution tier is dominated by Anheuser-Busch that the brewer would use that power to cut off access to smaller craft brews as well as their main competitor, MillerCoors.

You can see why MillerCoors opposes allowing Anheuser-Busch from owning distributors in Wisconsin, and you can see why the local distributors would fear the competition. But the craft brewers aren’t buying that this addition to the state budget is in their best interest.


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